Two Federal Reserve voters: support keeping interest rates unchanged unless the U.S. labor market weakens substantially

On Tuesday, US time, two Federal Reserve voting members spoke out this year. Both expressed hawkish views, suggesting that interest rates may remain unchanged for an extended period unless new, substantial signs of weakness appear in the US labor market to prevent a resurgence in inflation.

Cleveland Fed President: Rates May Remain Unchanged for a Long Time

Beth Hammack, President of the Cleveland Fed, recently stated that as Federal Reserve officials evaluate the continuously released economic data, interest rates may stay steady for a prolonged period.

On Tuesday, Hammack said, “Rather than trying to fine-tune the federal funds rate, I prefer to remain patient, assessing the impact of recent rate cuts while observing how the economy is performing. Based on my forecast, we may hold steady for quite some time.”

Hammack has previously urged her FOMC colleagues to exercise caution regarding rate cuts to avoid reigniting inflation. She supported last month’s decision to keep rates unchanged after three consecutive rate cuts by the end of 2025.

She shared a “cautiously optimistic” outlook, stating that fiscal support, lower interest rates, and other factors will drive US economic growth and bolster the labor market. She expects inflation to ease somewhat this year.

Hammack emphasized that if economic performance falls short of expectations, Fed officials need to remain flexible in their policy responses; she also indicated openness to rate hikes if necessary. “Currently, the risks of the federal funds rate moving higher or lower are roughly balanced. History shows that flexibility is beneficial.”

She also highlighted the importance of the Fed’s independence, which allows officials to make tough policy decisions aimed at long-term economic stability:

Hammack referenced the late Paul Volcker, former Fed Chair. In the 1970s, after runaway inflation, Volcker raised interest rates sharply and triggered a recession, ultimately successfully curbing high inflation.

During a Q&A after her speech, Hammack said, “Maintaining this independence is crucial so we can make those tough trade-offs when necessary. Sometimes, to sustain low inflation over the long term, short-term pain must be endured.”

Dallas Fed President Supports Keeping Rates Steady

Lorie Logan, President of the Dallas Fed, also stated on Tuesday that unless new, substantial signs of weakness emerge in the labor market, rates should remain unchanged. “In the coming months, we will see whether inflation is heading back toward our target and whether the labor market can stay stable.” Logan remains optimistic about inflation continuing to decline.

She said, “If that’s the case, it indicates our current policy stance is appropriate, and further rate cuts are not needed to achieve our dual mandate. Conversely, if inflation continues to fall while the labor market cools further and substantially, then a rate cut may become appropriate again.”

Logan supported the FOMC’s decision in its January meeting to keep rates unchanged after three consecutive cuts in 2025. She previously opposed rate cuts in October and December, citing still-high inflation and a balanced labor market.

On Tuesday, Logan reiterated this stance. She noted that the pace of hiring over the past roughly six months has been close to her team’s estimated “breakeven” level—that is, the rate at which new jobs match population growth. She also admitted she is “not yet fully convinced that inflation is steadily returning to the 2% target.”

Before becoming Dallas Fed President, Logan managed the Federal Reserve Bank of New York’s asset portfolio. She also discussed recent Fed balance sheet measures.

At the end of last year, amid increased government borrowing and the Fed’s reduction of bond holdings, market volatility intensified, and cash reserves in the financial system were drained. To ease this pressure, the Fed resumed expanding its balance sheet, purchasing about $110 billion in Treasury securities since December 12.

Logan said this process is technical and unrelated to monetary policy stance, and should not be mechanically operated. “Reserve demand may change over time with economic growth, banking and payment system changes, and regulatory adjustments. To maintain efficiency, the size of our reserve provision needs to roughly adjust with these changes.”

She added that if the Fed maintains ample reserves in the banking system, money market rates (such as the general collateral rate for tri-party repurchase agreements) should be close to the reserve balance rate over the long run.

Logan also called again for the Fed to provide a Standing Repo Facility for centralized clearing of transactions, and expressed appreciation for the high utilization of this tool by the end of 2025, calling it a “promising signal.”

US Economic Data Releases Intensify

Recent inflation data and signs of stabilization in the unemployment rate have encouraged Fed officials, but upcoming new data this week could test these assessments. The January employment report, delayed due to the recent government shutdown, will be released on Wednesday, while the next Consumer Price Index (CPI) report is expected on Friday.

According to data released earlier Tuesday by the US Department of Commerce, December retail sales underperformed expectations, with declines in 8 out of 13 categories.

President Trump has explicitly stated that he hopes the next Fed Chair will lower interest rates. This week, he claimed that his nominee to succeed Powell, Kevin Warsh, has the ability to achieve 15% economic growth, highlighting the significant political pressure Warsh would face if confirmed.

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